MUMBAI: Indian government bond yields were marginally higher on Monday as rise in oil prices weighed on the sentiment, and investors remained wary of the central bank’s next move on additional supply.
The 10-year benchmark 7.18% 2033 bond yield was at 7.3257% as of 10:00 a.m. IST on Monday, after ending at 7.3166% in the previous session.
“Oil above $90 per barrel is always a worrying sign, and hits the confidence of bulls, which is already impacted by the thought of additional supplies hitting the market,” a trader with a private bank said.
Oil prices jumped as investors priced in the possibility of a wider Middle East conflict after Israel’s Prime Minister Benjamin Netanyahu vowed on Sunday to “demolish” Hamas group as his troops made their first raids into the Gaza Strip.
The benchmark Brent crude contract was trading above $90 per barrel, stoking concerns about one of the most significant geopolitical risks to oil markets since Russia’s invasion of Ukraine last year, traders said.
Elevated oil prices could mount pressure on local inflation after a soft September reading was outweighed by sticky US inflation print last week that fuelled bets of higher-for-longer interest rates in the world’s largest economy.
Indian inflation rate eased to 5.02% in September from 6.83% in August but remained above the central bank’s 4% target.
Meanwhile, yields remained elevated after the Reserve Bank of India, earlier this month, said it plans to sell bonds via auctions to absorb banking system liquidity.
Indian bond yields flat ahead of inflation data
Market participants expect the bank to sell 500 billion rupees ($6 billion) of bonds this quarter.
The rise in yields initially attracted demand from state-run banks.
However, treasury officials warn that even the largest holders of such securities could go slow on purchases in the weeks ahead as banking system liquidity tightens.
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